This essay shall explore several aspects of Article 110 of the Treaty of Functioning of the European Union (EU),[1] which reads as follows:

[(1)] No Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products.

[(2)] Furthermore, no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products.[2]

This essay shall explore Article 110 in three parts. First, it shall examine the political and historical context of Article 110 and its predecessors in earlier Treaties. Second, the legislative intention of the Article shall be discussed; namely, what effect it was intended to have, and what principles the Article was intended to promote as part of the EU, formerly the European Economic Community (EEC). Third, the effect of the legislation will be examined by way of how it was interpreted and applied in case law.

Both Article 110(1) and 110(2) are directed to the same purpose, namely the prevention of protectionism measures which take effect against goods inside an EU Member State’s borders.[3] For this reason, the writer submits that the reader can accept the political context and the legislative intent are the same for both Article 110(1) and Article 110(2). Only in terms of how the legislation is applied will there be separate discussions of Article 110(1) and Article 110(2).

(It should also be made clear what this portion of legislation applies to: goods, which are characterised as ‘products which can be valued in money and which are capable, as such, of forming the subject of commercial transaction.’[4])

Political context

Article 110 was first enshrined as a provision in the Treaty of Rome. This Treaty came after the Council of Europe was established in 1949.[5] This Council was created in order to bring about a ‘lasting peace’ between the signatories, all of whom had suffered devastating losses of life, limb, and property in the Second World War.[6] The signatories were determined to prevent such a catastrophic event from happening again, and sought to do so by committing to an economic community.[7] This commitment eventually led to the signing of the Treaty of Rome in 1957. This Treaty brought about the concept of the common market, the idea of which was to allow ‘people, goods and services to move freely across borders.’[8]

The aim of the legislation

As with all other aspects of EU law, it was the intention of the EEC and EU lawmakers that the free movement of those goods would be based on the ‘rule of law, inasmuch as neither its Member States nor its institutions can avoid a review of the question whether the measures adopted by them are in conformity with the basic constitutional charter, the [EEC] Treaty.’[9] This meant the principles and the effects of free movement of goods were to have the force of law behind them.[10]

Article 110(1) of the Treaty of Functioning of the European Union 2012[11] was a provision formerly included in previous treaties, such as in the 1992 Treaty of the European Union.[12] In that latter treaty, with a view to establishing the European Community, the free movement of goods was already a fundamental and entrenched principle of the EU.[13]

Returning to the 1992 Treaty, at Title II, Article 2, the aim of instituting the free movement of goods was part of a larger task: ‘by establishing a common market and an economic and monetary union and by implementing the common policies or activities [such as free movement of goods]… to promote throughout the Community a harmonious and balanced development of economic activities, sustainable and non-inflationary growth respecting the environment, a high degree of convergence of economic performance, a high level of employment and of social protection, the raising of the standard of living and quality of life, and economic and social cohesion and solidarity among Member States.’[14] Therefore, free movement of goods was seen as a central element for promoting these wide-ranging principles of an economically harmonious and vibrant Community.[15]

The free movement of goods was to be achieved by the ‘elimination, as between Member States, of customs duties and quantitative restrictions on the import and export of goods.’[16] Article 110 can be distinguished from Article 30 TFEU, the latter of which was about preventing the imposition of tariffs on goods, otherwise known as ‘charges having equivalent effect’[17] as they crossed the borders of Member States. Article 110 was intended to prevent protectionism measures being applied against goods from other Member States once inside a Member State’s borders.[18]

In summary, Article 110 was part of a wide-ranging effort by the EU, formerly EEC, to bring about the goals set out in the 1992 Treaty and the Treaty of Rome. The free movement of goods was seen as essential for achieving these goals. For its part, Article 110 was to sit alongside other provisions relating to free movement of goods in order to give a complete protection of the principle of freedom of movement.[19]

The changes to the law: Article 110(1)

Article 110 first had to be rendered enforceable. The writer submits it should, therefore, be seen in light of the jurisprudence of the Court of Justice of the European Union (CJEU). After it was determined that provisions of the Treaty of Rome had direct effect in the ‘forceful… vigorous’[20] ruling of Van Gend en Loos[21], it was possible for Article 110’s predecessor to have some force: Member States were prohibited from the act of discriminating against imported goods via taxation.[22] The rule prohibiting discrimination was set out in Dassonville,[23] in which the court said ‘any trading rules which are capable of hindering, directly or indirectly, actually or potentially, intra-Community trade’ were unlawful.[24] It has been suggested the aim was to promote market access (though others have submitted this goal adds nothing to the Dassonville ‘formula’[25]). Article 110 has its roots in this case law.

The CJEU has determined Article 110(1) was drafted to prohibit taxation of two forms; first, any taxation that is directly discriminatory against imported goods when set against similar domestic goods, meaning any distinct tax banding based on the origin of goods.[26] The second form was any indirect taxation against similar imported products; this meant the prohibition of any criteria used for determining tax, which are such that on balance imported goods are taxed more heavily.[27] Arguably, the latter imposes a significant onus on Member State legislatures, and whilst direct discrimination was never permissible, there are instances in which indirectly discriminatory taxation could be permitted.[28] Member State legislatures would nevertheless have to be prepared for issues arising in those permitted instances, because such instances would require an objective justification.[29]

Article 110(2) has been explained as a means of prohibiting internal taxation that applies unequal tax ratings to domestic and imported goods, which, although not ‘similar’, are nevertheless in competition with each other.[30] As has been observed, whether goods are ‘in competition’ will depend on whether they are perceived by the consumer to be interchangeable, and whether this is the case will be decided by examining whether the price of one product rises in relation to another, and subsequently consumers switch to the lower-priced product.[31]

A problem that has been observed in the drafting of Articles 110(1) and (2) is that it is not always obvious whether certain goods are similar, or are ‘merely’ in competition.[32] It is submitted the problem is significant because a breach of either (1) or (2) will bring about a different response: a breach of Article 110(1) requires the importing Member State to equalise the taxes on similar imported and domestic goods, whilst a breach of Article 110(2) means the protectionism enjoyed by the domestic goods must be removed so that the tax ratings reflect the objective differences between the competing products.[33]

The CJEU later had to restore ‘a sense of waning faith in the Court’s institutional legitimacy’[34] for enforcing free movement of goods, including the measures in Article 110. This was done in the case of Keck and Mithouard[35], where hitherto the CJEU had been questioned for its right and ability to enforce EU legislation of free movement of goods.[36]

Conclusion

Article 110 has its roots in the pan-European project of economic prosperity and peaceful competition. The Article is a formulation of the free movement of goods, and that principle was seen as essential in promoting the various goals of the European Community. Article 110 was intended to achieve the objective of free movement of goods by preventing taxation measures that inhibited any such freedom of movement. It has been able to do so not just through the application of Articles 110(1) and (2), but also the case law which affirms the Article has direct effect. The Article itself has problems about similarity versus competing; nevertheless Article 110 is a necessary part of free movement of goods.